Business, Corporate & Contract Law

This question came from one of our users in Wisconsin :

Can an employer make you sign a noncompete agreement after you've been employed with this company for two years? This is a trade company, and he has no work for us at this time.

An employer in Wisconsin may require an employee to sign a non-compete agreement and may fire the employee if they refuse to sign it. It is the employee's decision whether to sign the non-compete agreement and keep their job, or not sign the agreement and be terminated.

However, it should also be noted that there are significant limitations on non-compete agreements, and whether the agreement will be enforceable depends on whether it satisfies the five factors established by Wisconsin law.

What is a Non-Compete Agreement?

A non-compete agreement is a contractual agreement, usually between an employer and an employee, where the employee agrees not to perform the work the employer currently hires them to perform, or similar work, for any other employer for an agreed-upon length of time after the employee stops working for the employer.

They are known by many names, such as a non-compete clause (NCC), restrictive covenant, or covenant not to compete (CNC). They are sometimes separate agreements and sometimes clauses in a more general employment contract.

Can My Employer Force Me to Sign a Non-Compete Agreement?

Often, an employer can require an at-will employee to sign a non-compete to keep their job. Because an at-will employee can be fired at any time for almost any reason, the employer's agreement not to terminate an at-will employee's employment constitutes sufficient consideration on the employer's part for there to be a valid contract.

However, if an employer demanded that an employee sign a non-compete agreement, then fired that employee immediately afterward, the non-compete agreement might not be a valid contract for other reasons, such as fraudulent inducement or a lack of good faith and fair dealing, which would make the non-compete agreement unenforceable.

Is a Non-Compete Agreement Enforceable Under Wisconsin Law?

For a non-compete agreement to be enforceable under Wisconsin law, it must :

• Be reasonably necessary for the protection of the employer;
• Cover a specified, reasonable territory;
• Not be unreasonable to the employee; and
• Not be unreasonable to the general public.

If the non-compete agreement imposes any restriction that is not reasonable, then the entire non-compete agreement is illegal, void, and unenforceable. If even one of these five elements is not satisfied or if even part of the non-compete agreement's restrictions is not reasonable, then the entire agreement is illegal, void, and unenforceable, including the reasonable restrictions. The public policy of this rule favors the mobility of workers.

Non-compete agreements are unreasonable if they do not give a geographical or time limitation or if those limitations are overly broad. A reasonably broad non-compete agreement would prohibit a computer programmer from working as a computer programmer for any of his current company's rivals within a 75-mile radius for at least 6 months.

An unreasonably broad non-compete agreement would prohibit a computer programmer from working for any technology company in the state of Wisconsin for at least 3 years.

Non-compete agreements have often been found to be enforceable if the employer gives something in exchange for the employee signing the non-compete agreement, such as additional training, paying for education, or stock options.

Wisconsin laws are especially likely to find these "transactional" types of non-compete agreements enforceable if the employee had the option not to sign the non-compete agreement but chose to sign it to receive the added benefit.

Is a Non-Compete Agreement Enforceable Under Federal Law?

It is for now, but this could change. On April 23, 2024, the Federal Trade Commission (FTC) issued a nationwide ban on the enforceability of non-compete agreements. However, before this ban went into effect, it was struck down by a district court judge in Texas in July 2024. A month later, this rule was also declared unenforceable by a district court judge in Florida.

Both cases were appealed. In the meantime, the United States underwent a transfer of executive power, and the new administration elevated a member of the FTC who voted against this ban as the new chairman of the FTC.

This new administration filed motions to halt these appeal proceedings for 120 days, which were granted. There have been no new updates since that time. This means that the rule could still be reinstated, but for now, there is no FTC nationwide ban on non-compete agreements.

Disclaimer : The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.

About the author

Kevin O'Flaherty is a graduate of the University of Iowa and Chicago-Kent College of Law. He hasexperience in litigation, estate planning, bankruptcy, real estate, and comprehensive business representation.

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